Today’s REI Classroom Lesson

Kathy Fettke talks to us today about where we’re at in the market cycle for commercial real estate and how you don’t have to accept low cap rates.

REI Classroom Summary

Kathy explains how there are billions of dollars in loans that will soon be due and how this situation can be an opportunity for real estate investors with access to capital.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Kathy: Hi, welcome to REI Classroom. I’m Kathy Fettke, co-CEO of Real Wealth Network and host of The Real Wealth Show on iTunes, and I want to talk to you a little bit about commercial real estate.
Mike: This REI Classroom real estate lesson is sponsored by the investormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Kathy: Because I follow market cycles, and I’m really concerned about the cycle that we’re in right now, because so many people, experienced investors and new investors, are jumping in and settling for really low cap rates thinking that they’ll never be anything good so they’re just going to settle on kind of good. I’ve got to tell you that never is the case. Every 10 years we have a market cycle. Prices go up and prices go down.
Here’s why I believe prices will begin to soften in commercial real estate and you don’t have to settle for low cap rates. Coming this August, $90 billion worth of commercial loans are coming due. They’re not resetting. They’re coming due. It’s estimated that about half of those, about $45 billion of commercial loans, won’t have new financing available because either the values have gone down or the incomes have gone down on those properties, so banks would only refi if the owner put in more money. Not all owners are going to have that kind of money to put into those projects, because many of these loans were taken back in 2006 when anyone could walk in the bank and get a loan. They didn’t really have to have much commercial real estate experience. They could also get commercial loans sometimes as high as 95% LTV. Well, that’s not available today, so many of these loans, $45 billion worth, are going to be put into the distressed asset category.
You could settle for a low cap rate today, or you could wait three or four months, or even now start to find the people who are in this predicament. If you can help them with some end financing then you can get a piece of the deal most likely. It would be a really good time to learn how to negotiate with banks because the banks aren’t going to be able to take back all these assets so they might renegotiate the loans. It’s a really good time to be a great bank loan negotiator and also a great time to have access to money.

If you’re not a syndicator already, learn how to raise money because you can go in and acquire these properties coming up in the next few months, again starting in August, even starting now if you can find the people who are going to need your help. If you are one of those people, don’t wait until August. Find out what your different exit strategies could be, because there may not be end financing for you and you don’t want to lose this property to foreclosure just because you can’t make the balloon payment.
Again, don’t settle for low cap rates. Know that there’s really good deals coming. Everything cycles. We’ve been at a real peak. Don’t pay peak pricing. Wait, because prices are about to soften in commercial real estate.
All right, I’m Kathy Fettke and this is REI Classroom. Thanks for joining me.
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Kathy Fettke is the CEO of Real Wealth Network, host of the Real Wealth Show in iTunes, and best selling author of Retire Rich with Rentals. With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.